Rough seas for first time issuer in troubled sector

Investors and analysts point out that now might not be the best time for a first-time issuer of equipment assets to make a go at it in the U.S. ABS market. There are no convincing signs that the economy is improving markedly and, although it appears delinquencies are leveling off, investors may be weary of new equipment issuers and the extra due diligence involved.

Nevertheless, with this is mind, small Canadian equipment finance concern Alter Moneta priced its $233 million equipment deal via RBC Dain Rauscher last week. The deal came following the establishment of a partnership between HSBC and Alter Moneta in which the latter would manage and service the portfolio held by HSBC Business Credit in addition to the acquisition of assets in its Equipment Finance Division. In all, the arrangement will add more than C$2 billon to Alter Moneta's assets under management.

With the ink not yet dry on the agreement, however, which was announced on Dec. 20, Alter Moneta saw some resistance in marketing the 2003-1 transaction.

Some investors speculated that the deal was held up last week because of the large, less complicated deals that are dominating the market, such as Citibank, MBNA and Ford Motor Credit - these may have distracted investors. The Rule 144A offering, backed by a full XL Capital wrap, was structured with a relatively short 1.3-year average life. The single-tranche offering priced at 100 basis points over EDSF, versus initial guidance in the low 90 basis point area. Bonds were reportedly placed with 15 investors ranging from Tier 1 through Tier 4.

"This provides an opportunity for Alter Moneta to significantly accelerate its long-term strategy of expanding into the United States commercial finance market by acquiring a substantial portfolio of assets and a meaningful presence in this market," said Alain Savard, president of Alter Moneta.

And so it does, but some outside observers and at least a few investors wonder: Why now?' Most analysts agree that despite the fact that delinquencies are stabilizing in the equipment sector, it is still viewed by investors as somewhat perilous. And investors, in particular, routinely scrutinize virgin issuers.

"In the last few months we have seen less liquidity in the secondary market for equipment ABS from names that are less frequently in the market," one research analyst said.

"So the $10 billion number forecast in equipment ABS issuance for 2003 is basically representative of the expectation that regular issuers in the market will once again have the ability to tap the market for funding."

Issuance for 2002 came in at about $8 billion, according to Thomson Financial.

To date, scant information has been released on the deal. Apparently, the advance rate for this portfolio is 97% and the reserve account, initially set at 50 basis points, increasing to 200 basis points. Chargeoffs are relatively low, reportedly below 2%.

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